The two US Treasury secretaries who navigated the nation through the global financial crisis said the next administration will inherit a vibrant economy with “dark” challenges, calling on politicians to address the fiscal deficit and safeguard market competition.

“The president’s also going to inherit some dark shadows - it’s a very dangerous, much more complicated world to navigate,” Timothy Geithner said Tuesday on Bloomberg Television’s Wall Street Week with David Westin. His predecessor at the Treasury’s helm, Henry Paulson, said that government debt is a “dark cloud” that, “if not checked, is ultimately going to destroy our prosperity.”

For now, the US economy is “the bright spot in the world,” with “the wind at our backs,” Paulson said. Geithner said “we’re at the commanding heights of the frontier of innovation in most areas that really matter.”

But both pointed to protectionist pressures and risks of overly strong government policies designed to lead to particular business outcomes, along with the trajectory of debt, as areas of concern. Geithner said a responsible fiscal policy will be important over time in protecting the dollar’s role in the global system.

“We’re still a safe haven - flight to safety in a messy dangerous world - and that’s a huge benefit,” Geithner said. But “people in policy have to understand, that position the dollar enjoys, there’s no entitlement to that. It’s not like a guarantee.”

Neither made specific reference to US geoeconomic competition with China, though that’s been a key driver of the tariff increases and other protectionst steps taken by both Republican and Democratic administrations the past several years. Outgoing President Joe Biden has also framed his economic agenda of support for US industries as a showcase that democracies can compete with a top-down regime like China’s.

Geithner, who served under Democratic President Barack Obama, said that protectionist pressures are a key challenge, along with a greater “sort of ambivalence about the role of the market.”

“The key thing is putting policies in place to let our markets work,” said Paulson, who worked under Republican President George W. Bush. “Democracy has got many strengths, but executing industrial policy isn’t one of them,” unlike for an authoritarian government, he said. “What we do have is we’ve got these dynamic businesses.”

Geithner said encouraging innovation is a challenge “hard to solve with the brute force of money and regulation and constraint.”

In China, President Xi Jinping has championed government support for advanced manufacturing, plowing subsidies into semiconductors and other sectors.

Geithner didn’t reject industrial policy out of hand, however, saying it “depends on the quality of judgments that people make in those jobs. It’s a hard thing to get right.”

The two former Treasury chiefs are co-chairs of the Aspen Economic Strategy Group, which is hosting a forum this week examining “strengthening America’s economic dynamism.”

They reiterated a message from last year about moving to address the fiscal trajectory. Last month, the Congressional Budget Office predicted that the federal deficit will widen as a share of gross domestic product this year - even with solid economic growth and a historically low unemployment rate. The gaps seen through 2034 equal or exceed 5.5%, something not seen since at least 1930, the CBO said.

“The longer we wait, the more expensive it’s going to be - and the more dangerous it’s going to be to clean up this mess before it strangles us,” said Paulson. “There’s a lot we can do if we start working on it right away. We’re going to need both revenues, we’re going to need taxes, then we’re going to need spending cuts.”

Geithner said that “responsible, sensible judgments about long-term fiscal challenges,” would be one key for sustaining the dollar’s role in the world. He also cited decisions on monetary policy and inflation, sanctions use and trade policy.

“So the dollar is a great strength of the United States,” said Geithner. “But it’s not something that is a guarantee. You have to continue to earn it.”

  - Bloomberg